Big-Box Match in the Early Rounds

The battle over Chicago’s so-called big-box ordinance may be over. But the legal war over how far a city may go in regulating what an industry pays its workers may just be getting started.

The City Council passed Chicago’s proposed ordinance by a wide margin last July. But in September, Mayor Richard M. Daley issued a veto—his first in 17 years as mayor. The council then fell three votes short of the two-thirds majority needed to override the veto.

However, the Chicago ordinance may not be gone for good. Supporters plan to reintroduce the measure after the city’s Feb. 27 municipal election, when they hope to pick up enough new votes to override the mayor’s veto.

If that happens, the governing board of the Illinois Retail Merchants Association has already authorized the initiation of a lawsuit on behalf of its 23,000 members challenging the constitutionality of the measure in federal court.

MORE WEAPONS IN ARSENAL

Even if the Chicago ordinance doesn’t resurface, there are similar measures in the works elsewhere that are likely to be contested in court on the same constitutional grounds if they ever come to pass.

“This isn’t over yet,” says Chicago labor and employment defense lawyer Jim Hendricks Jr., who has followed the controversy closely. “Not by a long shot.”

Chicago’s proposed big-box ordinance, so named because it targeted big retail chains like Wal-Mart and Target, would have required retailers in the city with stores of at least 90,000 square feet and more than $1 billion in annual sales to pay employees at least $13 an hour in wages and benefits by 2010.

Critics say the proposed ordinance, besides being bad for business, would violate the equal protection clause of the state and federal constitutions because it would apply to only one segment of the retail industry.

“You can’t have a law that applies to a Macy’s or a Nordstrom,” Hendricks says, “but doesn’t apply to the small boutiques they have to compete with.”

Critics also say the proposed ordinance would appear to run afoul of the federal Employee Retirement Income Security Act, which bars state and local governments from passing laws that require multistate employers to establish or modify certain uniform health benefits for their employees.

They cite a July 19 decision by a federal judge in Baltimore who struck down a Maryland law that was found to violate ERISA because it effectively forced covered employers to modify their health benefit offerings to Maryland employees. Retail Industry Leaders Association v. Fielder, CIV. No. JFM-06-316.

“The Chicago ordinance not only dealt with wages but with health benefits, which brought it under ERISA,” Hendricks says.

The Illinois retailers association identifies what it says are two other major constitutional problems with the proposed Chicago ordinance. It says the measure exceeds the city’s home-rule powers under the Illinois Constitution because it interferes in a field traditionally regulated exclusively by the state. The association says also that the proposed ordinance violates the dormant commerce clause of the federal Constitution because it interferes with interstate commerce.

“This proposed ordinance is irresponsible public policy in so many ways,” says Illinois association president David F. Vite in a prepared statement. “It’s unconstitutional, it doesn’t help the people it’s ostensibly designed to help, and it will obligate the city to pay damages to the affected retailers.”

But supporters say the proposed Chicago ordinance is legal and is likely to survive any avenue of attack in state or federal court.

They cite a long history of federal, state and local laws regulating employers based on industry and business size that have consistently been upheld in the courts.

MOVEMENT GAINING TRACTION

Living-wage laws have been enacted in more than 140 cities and counties around the country, says Paul K. Sonn, deputy director of the poverty program at the Brennan Center for Justice. The center is a public interest law firm at New York University School of Law, which advised drafters of the proposed Chicago ordinance.

In the handful of cases that have been brought, the laws have almost always been upheld, Sonn says.

In 2005, for example, a New Mexico state appeals court upheld a Santa Fe ordinance setting a minimum wage for businesses in the city with 25 or more employees. New Mexicans for Free Enterprise v. City of Santa Fe, 126 P.3d 1149. The year before, the San Francisco-based 9th U.S. Circuit Court of Appeals affirmed a Berkeley, Calif., ordinance setting a minimum wage for employers that received some sort of financial benefit from the city. RUI One Corp. v. City of Berkeley, 371 F.3d 1137.

Sonn concedes that the proposed Chicago ordinance differed in that it targeted large retailers. But he says opponents’ argument that it violated equal protection guarantees was “completely rejected” in a recent federal judge’s refusal to issue a preliminary injunction to block enforcement of a California city’s living-wage ordinance that applies to hotels with more than 50 rooms. Woodfin Suite Hotels v. City of Emeryville, No. C 06-1254 SBA (N.D. Cal. Aug. 28).

Supporters also contend that the proposed Chicago ordinance would not be pre-empted by ERISA. They point out that the Maryland law thrown out in July—now being appealed to the 4th U.S. Circuit Court of Appeals at Richmond, Va.—was a straight health benefits measure. The proposed Chicago ordinance, on the other hand, was a combined wage and benefits law of a type that federal appeals courts have held is not pre-empted by ERISA.

According to an analysis of the proposed Chicago ordinance by University of Illinois law school professor Laurie Reynolds, a leading authority on state and local government law, there is nothing in the home-rule provision of the Illinois Constitution to prevent the city from adopting a living-wage law to address the needs of its low-income residents.

ROOM FOR MANEUVER

Reynolds says Illinois cities are free to enact laws to meet local needs, except where prohibited by the state legislature. And state lawmakers have not explicitly barred Illinois cities from enacting higher minimum-wage laws within their borders.

In her analysis, Reynolds also disputes the suggestion that the proposed Chicago ordinance might violate the U.S. Constitution’s dormant commerce clause because the local benefit of providing a living wage to Chicago’s low-wage retail workers is substantial and because it is not clearly outweighed by any purported burden on interstate commerce.

Whatever comes of the proposed Chicago ordinance, the question of how far a city can go in regulating what an industry pays its workers is not likely to go away anytime soon.

Congress hasn’t raised the federal minimum wage in nine years, and a growing number of cities and counties are enacting minimum-wage laws of their own. At least one city—Washington, D.C.—is considering a big-box ordinance like Chicago’s. Los Angeles may be on the verge of adopting a living-wage ordinance that would apply only to hotels located near the city’s airport. And advocates in Spokane, Wash., are said to be collecting signatures for a ballot initiative that would set minimum wages for large retailers.

“We’re at the tip of the iceberg” in litigating the issue, which won’t be settled until some appellate court somewhere spells out exactly what cities can and cannot do, Hendricks says. The Chicago ordinance “was just the first volley. We still have a long way to go.”